Canadian stocks have felt the pinch of the U.S. banking sector of late, with top Canadian banks also plunging to lows not seen in many months. Even if the TSX Index falls behind the S&P 500, as markets return to the recovery track, I still think long-term thinkers should give many well-run Canadian firms another look while their shares are feeling the weight of worry.
In this piece, we’ll check out two stocks that Canadian investors may wish to stash on their radars. Though each stock may yet to have bottomed, I do like the risk/reward scenario going into a period of economic contraction. Now, recessions are scary. But there’s a lot of economic headwinds already baked in. Further, many pundits view the next recession as mild. Some think it’ll be short-lived. If a 2023 recession (likely in the cards for summer) is mild or short-lived, I think value plays could be in a spot to make up for lost time, as the risk appetite begins to normalize.
Right now, many investors are feeling increasingly worried. The Fed’s rate hikes caused a bank to crumble at a profoundly rapid rate. Though a contagion now seems less likely, one can’t help but feel gloomy. It’s times like these, though, when risks are known by all when it’s a good time to put some money to work.
Today, I like TC Energy (TSX:TRP) and National Bank of Canada (TSX:NA).
TC Energy
Don’t look now, but TC Energy stock is flirting with multi-year lows. The ailing pipeline firm can’t seem to catch a break, with shares now down around 32% from its 2020 all-time highs. The dividend has also swelled to 7.2%.
As you may know, a yield of more than 7% may be on less stable footing. Despite turbulence and regulatory drama, the company still has the means to continue paying investors while investing in future growth.
The company received a $650 million hit (for a so-called environmental remediation liability) in the fourth quarter. Looking further out, I think TC Energy can continue raising its payout, even though some may think a cut is in the books.
Yes, a yield of over 7% is a hefty commitment. But TC Energy still has the means to climb out of the gutter. When it does, those who buy while the yield is high may have a rare chance to “lock in” the yield while it’s more than 2% above historical averages (TRP stock tends to sport a yield in the 4.8-5% range).
National Bank of Canada
If you’re looking to the banking scene for a bargain, you’re on the right track. Banks have been at the epicentre of pain in recent weeks. Though regional banks in the states may be too risky to buy, I think the Canadian banks are ripe for picking.
National Bank is number six of the Big Six. The stock fared well amid recent U.S. bank volatility, outperforming many of its big brothers. I think it’s about time we give the stock the respect it deserves. The number-six bank may actually be a better bet than some of its hard-hit peers that have considerable U.S. exposure.
The stock is off just north of 8% from its high. That’s impressive, given many Canadian bank stocks are in a bear market right now. At 10.2 times trailing price to earnings with a 4.13% yield, NA stock is a wonderful bet for investors looking for a well-run domestic-flavoured bank with the means to hit new highs faster than its peer group.
